The New Mortgage Application Stress Tests

It is getting tougher and tougher to get a mortgage as the Lenders tighten their approval criteria for mortgage applications as a reaction to the introduction by the Financial Conduct Authority (FCA)’s introduction of new regulations under the ‘Mortgage Market Review’ in an attempt to slow the housing market which is widely believed to be over heating and to avoid another credit crunch crash.

Mortgage applicants are being subjected to interviews of up to 3 hours with banks conducting detailed and intrusive investigations of not only the applicant’s income and expenditure, but of future income and expenditure and life style.

In addition to the usual questions on expenditure such as utility bills, rent, food and so on, applicants are now being quizzed about how much they spend on eating out, socialising, alcohol, TV and internet , mobile phones , essential and non-essential travel, personal grooming , pets and child care and entertainment. Lifestyle issues such as how often they go out, interests, hobbies and whether or not they gamble or have ever taken out a payday loan. What the applicants future plans are - are they going to start a family, change their job or go self-employed? Applicants are asked to predict whether or not their income or expenditure is likely to increase or to drop within the next few years .

Whether or not the applicants state that they are going to start a family or go self-employed, they are asked the ‘What if’ enquiries: ‘What is likely to happen to their income or expenditure if they start a family or go self-employed? What if interest rates were to increase by 3% or more- will the applicants be able to afford the mortgage repayments?

An unintended consequence of this new regime is that there is an ever increasing backlog with applicants having to wait weeks for an appointment with the mortgage lender to apply for a mortgage application interview. The backlog is caused not only by the fact that the mortgage applications are longer but also by staff shortages at the banks and building societies as they can no longer use unqualified staff to conduct the interview and now require specialists.

Up to six months bank statements and wage slips are required as evidence of earnings and if the applicant is self-employed they are asked for track records of earnings going back six months and evidence of future earnings often in the form of a contract or formal offer of work.

Applicants with an annual income of £300,000.00 and assets of £3million or more are generally not affected by the new regime and are not subjected to the rigour of the new regime.

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